Against the commonly accepted view that in the run-up to EMU the Maastricht fiscal restraints were quite effective in re-aligning public finances in Member States that were showing large excessive deficits, Strauch and von Hagen stress that there are some objections concerning this initial sign...

We consider the effect of excluding government investment from the deficit subject to the limits of the European Stability and Growth Pact. In the model we consider, residents of a given country discount future costs and benefits of government spending more than efficiency would dictate, because...